The dollar index (DXY00) on Friday fell by -0.58%. The dollar was under pressure Friday as T-note yields retreated on dovish comments from Fed Governor Christopher Waller and St. Louis Fed President Alberto Musalem, who expressed their support for additional Fed interest rate cuts. Losses in the dollar accelerated on Friday after US-China trade tensions escalated, which could weigh on economic growth, following President Trump’s threat of a “massive increase” in tariffs on Chinese goods.
The ongoing shutdown of the US government is bearish for the dollar as the shutdown entered its second week on Monday. The lo…
The dollar index (DXY00) on Friday fell by -0.58%. The dollar was under pressure Friday as T-note yields retreated on dovish comments from Fed Governor Christopher Waller and St. Louis Fed President Alberto Musalem, who expressed their support for additional Fed interest rate cuts. Losses in the dollar accelerated on Friday after US-China trade tensions escalated, which could weigh on economic growth, following President Trump’s threat of a “massive increase” in tariffs on Chinese goods.
The ongoing shutdown of the US government is bearish for the dollar as the shutdown entered its second week on Monday. The longer the shutdown is maintained, the more likely the US economy will suffer, a negative factor for the dollar.
The University of Michigan US Oct consumer sentiment index fell -0.1 to a 5-month low of 55.0, stronger than expectations of 54.0.
The University of Michigan US Oct 1-year inflation expectations unexpectedly fell -0.1 to 4.6%, versus expectations of no change at 4.7%.
Fed Governor Christopher Waller said, “The labor market is weak,” and he’s open to quarter-point interest rate cuts at the coming FOMC meetings.
St. Louis Fed President Alberto Musalem said, “Looking ahead, I am open-minded about a potential further reduction in interest rates to provide further insurance against labor market weakening.”
The markets are pricing in a 97% chance of a -25 bp rate cut at the next FOMC meeting on Oct 28-29.
EUR/USD ([^EURUSD](https://www.barchart.com/forex/quotes/%5EEURUSD/overview)) on Friday rose by +0.39%. The euro moved higher on Friday due to dollar weakness. Also, hawkish comments from ECB Governing Council members Nagel and Kazaks boosted the euro when they signaled that current ECB interest rates are appropriate. Political uncertainty in France is limiting gains in the euro, although President Macron said that he’ll name a new prime minister by Friday evening, which could avoid the need to call for a snap election.
ECB Governing Council member and Bundesbank President Nagel said “the bar is rather high” to alter his assessment that the current ECB monetary policy stance is appropriate.
ECB Governing Council member Kazaks said we are about neutral on ECB rates as inflation remains contained and the current 2% rate is appropriate.
Swaps are pricing in a 2% chance of a -25 bp rate cut by the ECB at the October 30 policy meeting.
USD/JPY ([^USDJPY](https://www.barchart.com/forex/quotes/%5EUSDJPY/overview)) on Friday fell by -0.88%. The yen rebounded from a 7.75-month low against the dollar on Friday after Japanese producer prices in September rose more than expected, a hawkish factor for BOJ policy. Also, comments from Japanese Finance Minister Kato sparked short covering in the yen on concerns the BOJ was close to intervening in the currency market to support the yen when he said he’s seeing one-sided, rapid moves in the currency market. Gains in the yen accelerated on Friday after T-note yields fell.
The yen initially fell to a 7.75-month low today after Japan’s governing coalition collapsed following talks between LDP leader Takaichi and junior partner Komeito leader Saito, which ended without an agreement. The move makes it harder for Takaichi to garner the support needed to pass budgets or any meaningful legislation, and could potentially lead to another election.
The yen has tumbled this week due to concerns that the election of Sanae Takaichi as the leader of Japan’s ruling Liberal Democratic Party, which makes her the likely new Prime Minister of Japan, will result in a slower timeline for the BOJ’s policy tightening. Takaichi’s surprise victory has tempered expectations that the BOJ may raise interest rates as soon as this month, while raising concerns about an increased debt supply due to her support for expanded financial stimulus.
Japan Sep PPI rose +0.3% m/m and +2.7% y/y, stronger than expectations of +0.1% m/m and +2.5% y/y.
December gold (GCZ25) on Friday closed up +27.80 (+0.70%), and December silver (SIZ25) closed up +0.090 (+0.19%). Precious metals settled higher on Friday, driven by dollar weakness, lower global bond yields, and dovish comments from the Fed. Fed Governor Christopher Waller and St. Louis Fed President Alberto Musalem expressed their support for additional Fed interest rate cuts, which boosted demand for precious metals as a store of value. Political turmoil in Japan has also boosted safe-haven demand for precious metals after Japan’s governing coalition collapsed today, following talks between LDP leader Takaichi and junior partner Komeito leader Saito that ended without an agreement. Gains in gold accelerated and silver fell back from its best level Friday after US-China trade tensions escalated when President Trump threatened a “massive increase” of tariffs on Chinese goods, citing recent “hostile” export controls from China on rare-earth minerals.
Precious metals have surged over the past seven weeks, with nearest-futures (V25) gold posting an all-time high of $4,049.20 a troy ounce on Wednesday and silver prices posting a 14-year high on Thursday. With the US government remaining closed, demand for safe-haven assets, including precious metals, has increased. Also, political turmoil in France and Japan is boosting safe-haven demand for precious metals.
Precious metals continue to receive safe-haven support due to uncertainty tied to US tariffs, geopolitical risks, and global trade tensions. Also, President Trump’s attacks on Fed independence are boosting demand for gold. In addition, recent weaker-than-expected US economic news has bolstered the outlook for the Fed to keep cutting interest rates, a bullish factor for precious metals. The swaps market shows a 95% chance the Fed will cut the federal funds target range by 25 bp at the October 28-29 FOMC meeting.
Precious metals prices continue to receive support from fund buying of precious metal ETFs. Gold holdings in ETFs rose to a 3-year high on Wednesday, and silver holdings in ETFs rose to a 3-year high last Wednesday.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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